Wiz has confidently declined a $23 billion acquisition offer from Google, showcasing the company’s independent vision and strategic priorities
Last week, Google announced both positive and negative developments. The cloud division, which encompasses Google Workplace software as a service and Google Cloud infrastructure services, achieved its first quarterly revenue of $10 billion. This was a positive development.
That alleviated the pain of missing out on its second prospective $20+ billion acquisition in less than a month.
The initial unsuccessful acquisition was the long-rumored agreement to acquire HubSpot, a Boston-based CRM and marketing software company.
We could not obtain a price for that; however, the company’s market capitalization is in the $30 billion range so that you can perform the necessary calculations.
The rumor, which originated in April, persisted for several months before fading out when Bloomberg reported on July 10 that the companies were parting ways.
Another rumor quickly emerged, indicating that Google had shifted its focus to Wiz, a burgeoning cloud security startup with a $12 billion valuation.
According to reports, Google, which has never paid more than $12.5 billion for an acquisition, was reportedly offering $23 billion for Wiz, the most lucrative transaction ever proposed for a startup.
If the rumored figure is nearly accurate, why would any company decline such a substantial offer?
CEO Assaf Rappaport stated in an email to Wiz employees that he and his co-founders are convinced that the company has the potential to grow even further and are prepared to make a significant investment.
“We are grateful for the offers we have received; however, we have elected to continue constructing Wiz.”
ARR of $1 billion and an IPO are our forthcoming milestones. It is difficult to decline such humble proposals; however, I am assured that I can make the right decision with the support of our exceptional team.
A transaction of this magnitude can fail for a variety of reasons. It was evident that there were numerous obstacles from the outset, as a source informed TechCrunch immediately following the rumor’s release that there was a 50% likelihood that the agreement would fail.
According to Chirag Mehta, an analyst at Constellation Research, there are three potential explanations for the deal’s failure: Wiz intended to market around before a possible IPO, as it believed it could generate an even greater return than the $23 billion.
Google either discovered an issue during its due diligence process that it did not approve of, or the price was lower than the rumored $23 billion.
“Wiz could subsequently leverage this baseline to generate M&A interest from other players or even for future VC rounds that could potentially lead to an exit,” Mehta stated in an interview with TechCrunch.
He believes that Google must modernize its M&A unit to align with its financial strength and scale, irrespective of the cause.
“To effectively compete and achieve their growth and revenue diversification objectives, Google must restructure their entire M&A strategy and operations.”
He stated, “Despite their status as one of the world’s largest corporations, their mergers and acquisitions strategy has not evolved in tandem with their size.”
The regulatory environment may have also influenced the decisionw Eastwdecision.nalyst at IDC who follows Google, also mentioned that the market environment is complex, with many tech firms employing a more strategic and cautious acquisition approach due to regulatory and financial constraints.
“However, I think that Wiz likely withdrew (rather than Google) due to the potential to increase valuation by remaining independent (for the time being).”
The companies could have expended a substantial amount of time and effort awaiting regulators to decide on the transaction, similar to the situation that occurred to Figma when Adobe’s $20 billion offer was stalled in regulatory limbo for more than a year before the parties ultimately walked away.
However, Eastwood suggests that Wiz may have interpreted Google’s offer as confirmation that it is more advantageous to maintain its independence. “Wiz is a hybrid cloud data security plan that is rapidly expanding. In my opinion, if they can double their ARR organically, their market valuation will increase significantly, potentially exceeding a doubling.”
He may have a valid point. Wiz achieved $100 million in annual revenue just 18 months after its debut, making it the fastest startup to reach this milestone. The organization disclosed its yearly revenue (ARR) was approximately $350 million in May.
A source with knowledge of the matter informed TechCrunch that the ARR is approximately $500 million at present.
According to the individual, the organization intends to achieve an annualized revenue of $1 billion in the forthcoming year. Wiz would have been valued at 46 times its current ARR and 23 times its projected 2025 ARR if a transaction had been reached at $23 billion.
In January 2020, Wiz was established on the brink of the pandemic and subsequently experienced rapid growth.
The founders had previously succeeded with a security startup, Adallom, established in 2012. They sold the company to Microsoft three years later for approximately $300 million. The founders remained at Microsoft for over four years before departing to establish Wiz.
Crunchbase reports that it has raised more than $1.9 billion since its inception.
The fact remains that Google continues to experience difficulty closing significant transactions, regardless of whether it was Wiz’s or Google’s hesitation.
Although a good cloud quarter and a $40 billion run rate are undoubtedly beneficial, it is essential to note that M&A could potentially accelerate that growth.
Ingrid Lunden and Marina Temkin also made contributions to this post.
